2024 (7) TMI 1314 - AT - Service Tax

Classification of services - Business Auxiliary Service or not - amount realized by the appellant was commission received in the course of providing such taxable service - extended period of limitation - penalty. HELD THAT - The appellant has been engaged by their clients for procurement of goods on behalf of them. The goods procured by the appellant were sold to their clients on 'High Sea Basis' on receipt of an amount as determined in the agreement - the appellant has been engaged for the import of goods on behalf of their customers and the appellant is getting a fixed component as their consideration. The consideration is pre-determined in the agreement itself. Thus, it is observed that the contention of the appellant that they sell the goods procured by them to their customers and earn trading profits, is not supported by any evidence - the remuneration received from the customers is pre-determined and hence, it is equivalent to the 'commission' fixed for rendering a service. The service tax has been confirmed in this case under the category of business auxiliary service . Procurement of goods or services, which are inputs for the client, is specifically covered under sub-clause (iv) of the definition of 'business auxiliary service'. Also, 'undertaking any activity relating to sale or purchase of goods on receipt of commission' is also specifically covered under the definition of business auxiliary service - the services rendered by the appellant in connection with procurement of goods on behalf of their clients are specifically covered within the definition of business auxiliary service - the appellant is liable to pay Service Tax under the category of business auxiliary service . The appellant being a canalizing agency, the service charges collected by them have nothing to do with the transaction value of the goods. This view has been held by the Tribunal in the case of Gupta Chemicals Ltd. v. Commissioner of Customs, Jaipur 1999 (1) TMI 429 - CEGAT, NEW DELHI , which has been affirmed by the Hon ble Apex Court in 1999 (10) TMI 752 - SUPREME COURT . Extended period of Limitation - penalty - HELD THAT - The appellant is a Government of India undertaking and there is merit in the submission of the appellant that they have no intention to evade payment of tax. Thus we observe that suppression of facts with intention to evade payment of tax has not been established in this case. Hence, the demand confirmed in the impugned order by invoking the extended period of limitation is not sustainable. It is observed that the demand in this case has been confirmed for the period 2005-06 and 2006-07 and the Notice was issued on 22.12.2009, which is beyond the normal period of limitation of one year. Thus, the entire demand confirmed in the impugned order is barred by limitation and hence not sustainable. For the same reason, no penalty is imposable on the appellant. The impugned order is set aside on the ground of limitation - appeal allowed.

Summary

Issues Involved:

1. Liability to pay Service Tax on the commission received for procurement of goods.
2. Classification of the activities under 'Business Auxiliary Service'.
3. Applicability of the extended period of limitation for raising the demand.

Issue-wise Detailed Analysis:

1. Liability to pay Service Tax on the commission received for procurement of goods:

The appellant, M/s. State Trading Corporation of India Limited, entered into various agreements for procuring goods on behalf of their clients, such as NTPC and SGJHPL, and received commissions for these services. The Department alleged that the appellant did not pay Service Tax on these commissions during the period from 2005-06 to 2006-07. The appellant argued that these commissions were trading profits and not liable for Service Tax. However, the Tribunal observed that the remuneration received was pre-determined and equivalent to a commission fixed for rendering a service, thus liable for Service Tax under the category of 'Business Auxiliary Service'.

2. Classification of the activities under 'Business Auxiliary Service':

The Department considered the services of procuring goods on behalf of clients as 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994. The Tribunal upheld this classification, noting that the appellant's activities fell under sub-clause (iv) of the definition, which covers procurement of goods or services as inputs for the client. The Tribunal referenced the agreements and found that the consideration received was a fixed component, indicating it was a commission for services rendered. The Tribunal also relied on previous decisions, such as Gupta Chemicals Ltd. v. Commissioner of Customs, Jaipur, to support this classification.

3. Applicability of the extended period of limitation for raising the demand:

The appellant contended that the extended period of limitation was not invokable as there was no suppression of facts. They argued that all transactions were reflected in their Sales Tax returns and that they were under a bona fide belief that no Service Tax was payable. The Tribunal agreed, noting that the appellant had not registered for 'Business Auxiliary Service' or filed S.T.-3 Returns due to this belief. The Tribunal found that the appellant's actions were bona fide and that there was no intention to evade tax. Consequently, the Tribunal held that the extended period of limitation was not applicable, rendering the demand for Service Tax and penalties unsustainable.

Conclusion:

The Tribunal set aside the impugned order on the ground of limitation, allowing the appeal filed by the appellant. The demand for Service Tax and penalties was found to be barred by limitation and hence not sustainable. The Tribunal emphasized that the appellant's bona fide belief and the interpretative nature of the issue justified the non-invocation of the extended period of limitation.